Created in 1986, the Federal Loan Consolidation Program allows students to consolidate all of their government-sponsored loans into a single consolidation loan. Federal loans such as Stafford Loans, PLUS Loans, Federal Perkins Loans, HEAL Loans, FFELP and Direct Loans may be consolidated.

Loan Terms

Federal consolidation loans allow for longer repayment terms than do other federal or private student loans. Consolidation loans have repayment terms of 10-30 years, unlike individual federal loan programs which have repayment periods of up to 10 years in most cases.

The interest rate for federal student loan consolidation program loans are fixed, versus the variable interest rates of most other federal education loan programs.

The interest rate for a consolidation loan is calculated as a weighted average of the rates of the various existing loans and their respective balances. The rates are rounded up to the nearest 0.125%, and the rate for the consolidation loan is capped at a maximum rate of 8.25%.

Certain features of other federal loans, such as grace periods after graduation and special forgiveness circumstances are not carried over to consolidation loans.

How You Can Benefit From Student Loan Consolidation

Student loan consolidation benefits those students and former students who are currently managing multiple loan payments each month. Consolidation loans offer these students a way to just make a single monthly loan payment.

Meanwhile, given the longer loan terms, the monthly payment amount made by consolidation loan borrowers is lower than the total monthly payments of those same students before they consolidated. This is the case given the longer repayment period.

Another benefit of consolidation loans is that borrowers can change their repayment periods at any time, changing from (for example) a 10-year to a 20-year repayment period. And, consolidation loans can be prepaid at any time without penalty.

Disadvantages

The only real disadvantage to a consolidation loan is that the borrower will likely end up paying more in total interest over the life of the loan, given that the repayment terms are longer.